Decisiveness deficit

BY EDWARD HADAS

European banks: It was another tough weekend for European politicians and bankers. They did what they were supposed to, but it looks like another tough week lies ahead.

The authorities are certainly trying. On Sunday morning, three European banks faced serious challenges. The rescues of Hypo Real Estate in Germany and the Belgian part of Fortis had proven inadequate, while the Italian Unicredit looked short of capital.

By October 6, these problems had been resolved – by a bigger rescue, a takeover and a capital raising respectively. Not bad for a region with a reputation for muddled indecision. There were also new deposit guarantees in Germany, Austria and Denmark, warm words from the leaders of the four largest economies and broad hints of a recapitalisation of UK banks.

But investors weren’t comforted. The region’s stock markets dropped by 5-6% early on October 6 …

It shouldn’t have come to this. A year ago, Europe looked well placed to fend off financial ills. True, the UK had US-style problems with a housing bubble and a big trade deficit, but the eurozone had few bubbles, balanced trade, reasonably prudent governments, a firm central bank and a strong tradition of government guidance and support in banking.

It turned out, though, that some European banks had dabbled too much in overvalued and overly complex US assets. The authorities have also been slow. Governments solutions to institutional problems have been fragmentary and central bank liquidity provision reactive.

With Asia slowing and the US struggling, Europe cannot depend on the rest of the world to rebuild confidence. It needs to act boldly itself. Perhaps the UK, the most troubled of the big European economies, will take the lead. A comprehensive reorganisation – with taxpayers getting preferred shares and banks being led to an orderly deleveraging – could be just what the markets need.

Government action fails to halt global sell-off

By Michael Hunter and Neil Dennis in London and Lindsay Whipp in Tokyo

Published: October 6 2008 08:35 | Last updated: October 6 2008 17:04

Stocks suffered sharp falls on Monday, as worries about the extent of the crisis in the financial sector deepened after finance ministers failed to reach a consensus on how to react.

WSJ on line nel pomeriggio:

October 6, 2008, 9:13 am

Just Another Manic Monday

Posted by David Gaffen

U.S. markets are in for it this morning. The passage of the bailout bill Friday has not alleviated concerns about credit markets, particularly those in Europe, where a series of capital injections and bank failures has undermined confidence in those markets, which do not benefit from a central federalized system as in the U.S.

* EUROPE MARKETS

* OCTOBER 6, 2008, 11:03 A.M. ET

Bank Turmoil Sinks European Shares

European stocks plunged Monday as a wave of emergency government measures failed to stem concerns about the region’s financial system and economy. (…)

European policy-makers spent their weekend shoring up the financial system. The German government moved Sunday night to arrange a bailout for property lender Hypo Real Estate Holding AG. German officials also issued a guarantee for all consumer bank deposits. The Belgian and Luxembourg governments arranged for French bank BNP Paribas SA to take over the Belgian and Luxembourg operations of ailing financial firm Fortis NV after a previous aid plan failed to prevent customers from leaving. Iceland’s government is also scrambling to rescue its banking industry, while Denmark late Sunday took measures to protect its financial stability. The wave of measures largely overshadowed the passage of the U.S. government’s $700 billion market bailout last Friday.

“People are waiting,” said Benoit Hubaud, head of research at French bank Societe Generale in Paris. “They’re trying to understand the consequences of what has been announced.” (…)

In the credit markets, the cost of insuring against default on €10 million of European company debt for five years jumped to about €134,500 annually, from €125,000 Friday, according to the Markit iTraxx index. (…)

Worse, the markets that banks rely on for funding remained under severe pressure, despite efforts by the world’s central banks in recent weeks to pump more cash into the financial system.

The London interbank offered rate, which is supposed to reflect the short-term rates at which banks lend to one another, rose for overnight dollar loans to 2.37% from 2% Friday. The U.S. Federal Reserve’s target for the overnight rate is 2%. Three-month dollar Libor improved slightly, falling to 4.29% from 4.33%. However, a key gauge of concerns about banks — the difference between three-month Libor and market expectations for central-bank target rates — rose to 2.89 percentage points from 2.84 percentage points. Euro-based Libor rates also rose, with the three-month rate hitting 5.34% from 5.33%.

“The situation is not improving at all,” said Societe Generale’s Mr. Hubaud, who added that he expects central bankers to cut interest rates soon to pump blood into the global economy.

* TODAY’S MARKETS

* OCTOBER 6, 2008, 11:11 A.M. ET

Dow Dips Under 10000 As Bank Woes Persist

The U.S. market’s drop comes on the heels of a plunge in European markets during the overnight hours in New York. Investors around the world are increasingly worried that a deep global economic slowdown is taking hold despite measures like last week’s bailout of Wall Street and moves by the Federal Reserve prior to Monday’s opening bell to further encourage bank lending.

“It’s hard to be bullish based on monetary policy or bailouts alone,” said Chris Johnson, president of Johnson Research Group, in Cincinnati. “It doesn’t address the fundamentals of the stock market, which have some very deep problems right now.”

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